Goodyear Earns Profit for 2004 Second Quarter
- Reports net income of $25.1 million, or 14 cents per share
- Increases segment operating income by 92 percent
- Drives record sales of $4.5 billion
- Achieves record second quarter sales in North American Tire business
AKRON, Ohio, Aug. 5 -- With all seven businesses profitable, The Goodyear Tire & Rubber Company today reported net income of $25.1 million (14 cents per share) for the second quarter of 2004, reflecting record sales and increased unit volume. In the second quarter of 2003, the company had a net loss of $53.0 million (30 cents per share). All per share amounts are diluted.
Sales of $4.5 billion were a record for any quarter, and a 20.1 percent increase from $3.8 billion during the 2003 period. The increase in sales reflects improved pricing and product mix as well as higher unit volume. It also reflects the positive impact of the consolidation of two subsidiaries and the favorable impact of currency translation.
Tire unit volume in the second quarter of 2004 was 55.0 million units, compared to 52.8 million units in the 2003 period.
All seven of Goodyear's business units reported higher segment operating income compared to the year-ago period. Total segment operating income was $285.8 million, up 91.7 percent from last year.
"With a relentless focus on delivering sustained growth and profitability to our shareholders, we have been directing our attention toward controlling costs, enhancing dealer relationships, focusing on high-margin product lines and introducing new products designed to please customers around the world," said Robert J. Keegan, Goodyear chairman and chief executive officer. "This quarter's profitable results are a direct reflection of the ongoing efforts of our associates and demonstrate that we are on the right track," he said.
"While we still have work to do, we are pleased by the success we have achieved to date, particularly the traction we are gaining in our North American Tire business, which is reporting a quarterly profit for the first time in nearly two years," Keegan added. "The company continues to work on improving both its operating results and capital structure, however we are confident that we are executing the right strategies. We expect our year- over-year momentum to continue through the second half."
The second quarter of 2004 includes a $327 million positive impact on sales, a 1.3 million unit increase in tire volume and a $4.4 million impact on net income resulting from the consolidation of South Pacific Tyres Ltd. (SPT), a tire manufacturer in Australia and New Zealand, and T&WA, a tire-mounting operation in the United States. These operations were consolidated in accordance with U.S. Financial Accounting Standards Board Interpretation No. 46 (FIN 46).
The 2004 second quarter also included after-tax rationalization charges of $8.6 million (5 cents per share) and an after-tax charge of $9.0 million (5 cents per share) related to external professional fees associated with the previously disclosed accounting investigation. The quarter also included an after-tax gain of $1.7 million (1 cent per share) on asset sales.
The company estimates the effects of currency translation had a positive impact on second quarter sales of approximately $86 million.
Raw material cost increases of approximately $41 million offset the savings generated from rationalization actions and improved productivity.
The second quarter of 2003 included an after-tax rationalization charge of $11.5 million (6 cents per share) and an after-tax loss of $6.2 million (3 cents per share) on asset sales.
Goodyear recently announced additional plans to refinance and lengthen the maturity of one of its U.S. credit facilities and the company will continue to use specific strategies to address high levels of debt and unfunded pension obligations. In addition to further refinancing to lengthen debt maturities, Goodyear will explore potential asset sales and will ultimately seek increased equity funding to improve its credit profile.
Year-to-Date Results
Sales for the first six months of 2004 were a record $8.8 billion, an increase of 20.6 percent from $7.3 billion in the 2003 period. Tire unit volume was 110.7 million units, up from 105.4 million units a year ago.
The net loss for the first six months of 2004 was $51.8 million (30 cents per share), compared to a loss of $249.5 million ($1.42 per share) during the year-ago period.
The consolidation of SPT and T&WA increased tire unit volume by 3.1 million units, had a positive impact on sales of $581 million, and had a minimal impact on the net loss.
The first six months of 2004 included the following after-tax items: a rationalization charge of $29.1 million (16 cents per share); a charge of $24.3 million (14 cents per share) related to external professional fees associated with the previously disclosed accounting investigation; an expense of $11.6 million (7 cents per share) relating primarily to a fire at a European tire manufacturing facility, and $4.9 million (3 cents per share) for accelerated depreciation primarily related to the closure of a Latin American tire manufacturing facility. The half also included an after-tax gain on sale of assets of $5.6 million (3 cents per share).
The 2003 year-to-date period included an after-tax rationalization charge of $69.2 million (39 cents per share) and an after-tax loss on asset sales of $5.1 million (3 cents per share).
The company estimates the effects of currency movements had a positive impact on sales of approximately $286 million during the first half.
Business Segments
Second quarter total segment operating income was $285.8 million, an increase of 91.7 percent compared to $149.1 million in the 2003 period. For the first half, total segment operating income was $501.9 million, an increase of 162.6 percent from $191.1 million in 2003.
See the note at the end of this release for further explanation and a reconciliation table.
North American Tire Second Quarter Six Months
(in millions) 2004 2003 2004 2003
Tire Units 25.7 25.3 50.4 50.1
Sales $1,982.0 $1,692.0 $3,745.5 $3,284.2
Segment Operating
Income (Loss) 30.4 (10.2) (1.3) (76.7)
Segment Operating
Margin 1.5% (0.6) % (0.0)% (2.3)%
North American Tire's unit volume increased 1.6 percent in the second quarter of 2004, and 0.7 percent in the first six months. Replacement volume increased 5.6 percent in the quarter and 2.4 percent in the six-month period, while shipments to original equipment customers were down 5.9 percent in the quarter and 2.7 percent in the first half compared to the 2003 periods.
Sales were a second quarter record, increasing 17.1 percent compared to the 2003 period, and 14 percent for the first six months. Sales were positively affected by the consolidation of T&WA; favorable pricing and product mix, primarily in the replacement markets; as well as increased volume. Second quarter results were driven by sustained improvement in Goodyear-brand tires, as well as some stabilization in the company's private label business.
Second quarter segment operating income improved significantly compared to the 2003 period due to improved pricing and product mix, as well as higher volume in the consumer replacement and commercial original equipment markets. Savings from rationalization programs partially offset higher raw material and manufacturing costs.
Segment operating income for the first half improved 98.3 percent from 2003. Pricing and product mix, as well as volume improvements, were driven primarily by the consumer replacement and commercial original equipment tire markets, consistent with second-quarter drivers. Higher raw material costs, as well as higher manufacturing costs, were partially offset by rationalization savings.
The consolidation of T&WA increased sales by approximately $152 million in the second quarter and $226 million in the first half. T&WA's results included in segment operating income were approximately $1.0 million for both the quarter and the half.
European Union Tire Second Quarter Six Months
(in millions) 2004 2003 2004 2003
Tire Units 15.4 4.9 31.7 30.7
Sales $1,061.2 $961.4 $2,171.9 $1,889.7
Segment Operating
Income 56.6 37.6 125.5 62.6
Segment Operating
Margin 5.3% 3.9% 5.8% 3.3%
European Union Tire's unit volume in the second quarter of 2004 increased 3.2 percent from 2003, and 3.1 percent for the first half. Replacement volume increased 4.1 percent for the quarter and 5 percent for the first six months. Shipments to original equipment customers were essentially flat in the second quarter and the first half.
Sales increased 10.4 percent for a new second quarter record, and increased 14.9 percent for the six months compared to 2003 due primarily to the favorable effect of currency translation and higher volume. Improved pricing and product mix also drove the sales increase in the 2004 first half.
The company estimates the effects of currency translation positively impacted sales by approximately $65 million in the second quarter of 2004 and $195 million in the first half.
Segment operating income increased 50.5 percent during the second quarter and doubled for the first six months of 2004 primarily due to improved pricing and product mix, higher volume and the favorable impact of currency translation. The first half also benefited from productivity and cost reduction improvements.
Eastern Europe, Middle Second Quarter Six Months
East, Africa Tire
(in millions) 2004 2003 2004 2003
Tire Units 4.6 4.7 9.2 8.7
Sales $300.8 $268.6 $583.8 $496.0
Segment Operating
Income 45.8 34.4 88.4 55.3
Segment Operating
Margin 15.2% 12.8% 15.1% 11.1%
Eastern Europe, Middle East and Africa Tire's unit volume in the second quarter of 2004 decreased 2.9 percent from the 2003 period, and increased 5.8 percent for the first half. Replacement volume was down 2.8 percent for the quarter, but up 5.5 percent for the half. Shipments to original equipment customers were down 3.5 percent compared to the second quarter of 2003, but up 6.9 percent for the half.
Sales were up 12 percent in the quarter and 17.7 percent in the half primarily due to improved pricing and product mix, largely the result of increased sales of high performance and commercial truck tires, the impact of price increases and the favorable impact of currency translation.
The company estimates currency translations had a positive impact on sales of approximately $20 million in the second quarter, and $48 million in the first half.
Segment operating income improved 33.1 percent in the quarter and 59.9 percent for the half due to improved pricing and product mix, as well as higher volume.
Latin American Tire Second Quarter Six Months
(in millions) 2004 2003 2004 2003
Tire Units 4.6 4.4 9.6 9.1
Sales $291.4 $258.3 $594.0 $490.0
Segment Operating
Income 61.5 33.8 123.0 60.4
Segment Operating
Margin 21.1% 13.1% 20.7% 12.3%
Latin American Tire's unit volume increased 5.3 percent from the 2003 second quarter and 6.1 percent for the first half. Replacement volume was up 10.2 percent for the quarter and 11 percent for the half. Shipments to original equipment customers were down 9.2 percent for the quarter and 8.4 percent for the first six months.
Sales were favorably impacted in both periods by price increases and improved product mix, primarily in the replacement market, as well as higher volume. In the second quarter, these factors were partially offset by the unfavorable impact of currency translation of approximately $8 million in the quarter. The effects of currency translation had a positive impact on first half sales of approximately $9 million.
Segment operating income increased significantly in both periods of 2004 due to improved pricing, product mix and volume, as well as savings from cost reduction programs.
Asia/Pacific Tire Second Quarter Six Months
(in millions) 2004 2003 2004 2003
Tire Units 4.7 3.5 9.8 6.8
Sales $327.0 149.1 $649.6 $289.8
Segment Operating
Income 16.3 12.7 26.6 25.9
Segment Operating
Margin 5.0% 8.5% 4.1% 8.9%
Asia/Pacific Tire's unit volume was up 36.9 percent from the 2003 second quarter, and 44.3 percent for the first half of the year, driven largely by the consolidation of SPT. Replacement volume increased 45.6 percent for the quarter and 59.4 percent for the half. Shipments to original equipment customers increased 18.8 percent for the quarter, and 13.9 percent for the first six months.
Sales increased compared to the 2003 periods due primarily to the consolidation of SPT. Improved pricing and product mix also had a positive impact on sales during the quarter and half. The favorable impact of currency translation on first-half sales was approximately $9 million.
Segment operating income increased for both the quarter and the half compared to 2003 due to improved pricing and product mix, as well as lower manufacturing costs due to improved productivity. The consolidation of SPT had a slightly favorable impact on the quarter.
The consolidation of SPT increased units by 1.3 million in the second quarter and 3.1 million in the first half, and increased sales by approximately $173 million in the quarter and $353 million in the half. The impact on segment operating income was an approximately $1.0 million increase in the second quarter, with a minimal decrease in the first half.
Engineered Products Second Quarter Six Months
(in millions) 2004 2003 2004 2003
Sales $368.1 $299.0 $712.7 $590.9
Segment Operating
Income 32.2 20.2 54.6 11.6
Segment Operating
Margin 8.7% 6.8% 7.7% 2.0%
Engineered Products' sales in the second quarter of 2004 increased 23.1 percent due largely to higher volume and favorable product mix related to military, original equipment and replacement sales. Strong military, industrial and original equipment sales drove the 20.6 percent increase in sales during the first half. Currency translation favorably impacted sales by approximately $5 million in the quarter and $22 million in the first half.
Segment operating income increased in both periods due to higher volume, primarily in the military business. Savings from rationalization actions also improved segment operating income in the second quarter.
Chemical Products Second Quarter Six Months
(in millions) 2004 2003 2004 2003
Sales $377.0 $303.6 $735.0 $603.1
Segment Operating
Income 43.0 20.6 85.1 52.0
Segment Operating
Margin 11.4% 6.8% 11.6% 8.6%
Chemical Products' sales increased in both the quarter and the half due to higher volume and higher selling prices resulting primarily from the pass through of increased raw material and energy costs.
Segment operating income increased significantly in both periods due to improved price and mix, higher volume and plant efficiencies.
The company announced last month that it has concluded its exploration into the possible sale of the Chemicals Business, determining that the business remains more valuable to Goodyear and its stakeholders if retained than if sold.
Conference Call
Goodyear will hold an investor conference call at 9 a.m. EDT today. Prior to the commencement of the call, the company will post the financial and other statistical information that will be presented on its investor relations Web site: investor.goodyear.com.
Participating in the conference call with Keegan will be Richard J. Kramer, executive vice president and chief financial officer.
Shareholders, members of the media and other interested persons may access the conference call on the Web site or via telephone by calling (706) 634-5954 before 8:55 a.m. A taped replay of the conference call will be available at 2 p.m. today by calling (706) 634-4556. The call replay will also remain available on the Web site.
Goodyear is the world's largest tire company. The company manufactures tires, engineered rubber products and chemicals in more than 80 facilities in 28 countries around the world. Goodyear employs about 86,000 people worldwide.
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statement of Income (unaudited)
(In millions, except per share)
Second Quarter Six Months
Ended June 30 Ended June 30
2004 2003 2004 2003
Net Sales $4,508.9 $3,753.3 $8,799.8 $7,299.1
Cost of Goods Sold 3,582.8 3,038.8 7,048.5 6,001.6
Selling, Administrative
and General Expense 689.7 594.0 1,374.6 1,165.3
Rationalizations 10.0 15.4 33.8 76.1
Interest Expense 87.0 82.4 171.2 140.8
Other (Income) Expense 37.5 29.4 80.6 73.0
Foreign Currency Exchange (2.2) 18.1 3.7 19.0
Equity in (Earnings) Loss
of Affiliates (1.9) 0.9 (3.7) 4.3
Minority Interest in
Net Income of
Subsidiaries 20.3 13.3 26.6 23.5
Income (Loss) before
Income Taxes 85.7 (39.0) 64.5 (204.5)
United States and
Foreign Taxes
on Income 60.6 14.0 116.3 45.0
Net Income (Loss) $25.1 $(53.0) $(51.8) $(249.5)
Net Income (Loss) Per
Share of Common Stock
- Basic $0.14 $(0.30) $(0.30) $(1.42)
Average Shares Outstanding 175.3 175.3 175.3 175.3
Net Income (Loss) Per Share
of Common Stock - Diluted $0.14 $(0.30) $(0.30) $(1.42)
Average Shares Outstanding 176.8 175.3 175.3 175.3
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheet (unaudited)
(In millions)
June 30 Dec. 31
2004 2003
Assets
Current Assets:
Cash and Cash Equivalents $1,300.6 $1,541.0
Restricted Cash 85.1 23.9
Accounts and Notes Receivable, less
allowance - $131.4 ($128.2 in 2003) 3,148.8 2,621.5
Inventories 2,677.8 2,465.0
Prepaid Expenses and Other Current Assets 263.5 336.7
Total Current Assets 7,475.8 6,988.1
Long Term Accounts and Notes Receivable 226.5 255.0
Investments in Affiliates 34.9 177.5
Other Assets 83.3 74.9
Goodwill 624.6 622.5
Other Intangible Assets 146.8 161.8
Deferred Income Taxes 397.5 397.5
Prepaid and Deferred Pension Cost 865.3 868.3
Deferred Charges 245.9 252.7
Properties and Plants, less Accumulated
Depreciation - $7,321.5 ($7,246.8 in 2003) 5,161.2 5,207.2
Total Assets $15,261.8 $15,005.5
Liabilities
Current Liabilities:
Accounts Payable - Trade $1,688.1 $1,572.9
Compensation and Benefits 1,050.2 983.1
Other Current Liabilities 526.5 572.2
United States and Foreign Taxes 356.7 306.1
Notes Payable 145.3 137.7
Long Term Debt due within One Year 1,195.8 113.5
Total Current Liabilities 4,962.6 3,685.5
Long Term Debt and Capital Leases 3,916.0 4,826.2
Compensation and Benefits 4,639.5 4,540.4
Other Long Term Liabilities 1,117.8 1,140.8
Minority Equity in Subsidiaries 773.4 825.7
Total Liabilities 15,409.3 15,018.6
Shareholders' Equity
Preferred Stock, no par value:
Authorized 50 shares, unissued -- --
Common Stock, no par value:
Authorized 300 shares
Outstanding Shares - 175.3 (175.3 in 2003)
After Deducting 20.3 Treasury Shares
(20.4 in 2003) 175.3 175.3
Capital Surplus 1,390.3 1,390.2
Retained Earnings 928.6 980.4
Accumulated Other Comprehensive Income (Loss) (2,641.7) (2,559.0)
Total Shareholders' Equity (147.5) (13.1)
Total Liabilities and Shareholders' Deficit $15,261.8 $15,005.5
Total Segment Operating Income Reconciliation Table (unaudited)
(In millions)
Second Quarter Six Months
Ended June 30 Ended June 30
2004 2003 2004 2003
Total Segment Operating
Income $285.8 $149.1 $501.9 $191.1
Rationalizations and
asset sales (7.6) (29.8) (27.3) (89.1)
Accelerated depreciation
charges and asset
writeoffs (0.6) (0.7) (4.9) (8.2)
Interest Expense (87.0) (82.4) (171.2) (140.8)
Foreign Currency
Exchange 2.2 (18.1) (3.7) (19.0)
Minority Interest in
Net Income of
Subsidiaries (20.3) (13.3) (26.6) (23.5)
Inter-SBU income (31.7) (18.2) (64.5) (36.0)
Financing fees and
financial instruments (28.1) (25.1) (61.7) (53.1)
Equity in earnings
(loss) of affiliates 0.7 (2.2) 0.6 (6.4)
General and product
liability, discontinued
products (12.1) 9.1 (19.8) (10.0)
Expenses for insurance
fire loss deductible - - (11.7) -
Professional fees
associated with
restatement (9.0) - (24.3) -
Other (6.6) (7.4) (22.3) (9.5)
Income (loss) before
Income Taxes 85.7 (39.0) 64.5 (204.5)
United States and
Foreign Taxes on loss (60.6) (14.0) (116.3) (45.0)
Net Income (Loss) $25.1 $(53.0) $(51.8) $(249.5)
Management believes that total segment operating income is useful because
it represents the aggregate value of income created by the company's
strategic business units ("SBUs") and excludes items not directly related to the SBUs for performance evaluation purposes. Total segment operating
income is the sum of the individual SBU's segment operating income as determined in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information."